Taxes

Your total income for the year minus certain allowed adjustments, a key figure the IRS uses to calculate parts of your tax return and determine eligibility for tax benefits. It sits between gross income and taxable income, since you subtract adjustments like retirement or HSA contributions to reach it, then subtract deductions from it to find taxable income. A lower AGI can reduce taxable income and improve access to income-based credits and deductions.

The income ranges in the progressive federal tax system, where your income is taxed in layers with different portions taxed at different rates. Moving into a higher bracket does not tax all your income at that rate, only the dollars above the threshold. This is why your marginal rate (the rate on your last dollar) is usually higher than your effective rate (the average across your total taxable income). 

The portion of your total income that the IRS considers subject to taxation, calculated by subtracting allowable deductions from your gross income. It includes not just wages but also business earnings, investment income, rental income, and sometimes government benefits. Once determined, it is the figure used to calculate how much you owe based on your tax bracket and marginal rate.

Money taken out of certain payments and sent directly to the IRS on your behalf, most commonly federal income tax withheld from each paycheck. It works as a pay-as-you-go system, spreading your tax payments across the year instead of paying everything at tax season. For employees it is set by Form W-4, and it can also apply to pensions, annuities, and certain retirement distributions.

The rate at which your last dollar of income is taxed. In the progressive U.S. system, income is taxed in tiers, so being in a 22% bracket means only the income within that bracket is taxed at 22%, not your entire income. It differs from your effective tax rate, which is the average rate you actually pay across your total income after deductions and credits.

A state-level tax that some beneficiaries pay when they receive assets from someone who has died, which can include cash, real estate, investment accounts, and personal property. The key feature is that the person receiving the inheritance pays it, unlike an estate tax, which is paid by the estate before assets are distributed. There is no federal inheritance tax, and as of 2024 to 2025 only five states impose one.

The total amount of tax you owe to the government based on your taxable income, including all applicable taxes such as income tax, capital gains tax, and self-employment tax. It is calculated by determining taxable income, applying the appropriate tax rates, and then subtracting any tax credits. It varies with your income level, filing status, and the deductions and credits you qualify for.